5 Differences Between Commercial and Personal Lines Insurance

We’ve already written about the challenges facing the personal lines side of the insurance industry and shared one suggestion to fight the commoditization. Our suggestion was aimed at the carriers. It is a bigger goal than any one agent or carrier can accomplish alone. In the meantime, traditional agents and brokers need to reinvent themselves to succeed in the new marketplace. This series of articles is meant to help personal lines focused agents, CSRs and underwriters prepare for a transition to commercial lines.

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As we all know, in the past, everyone had a local agent who they consulted at renewal, brought payments to, and even visited when they had a claim. Now, many people receive paperless renewals, have their payments automatically drafted, and call an 800 number to report a claim. Many people are purchasing their auto or property policies online or through an 800 number or a website, but the industry hasn’t progressed to offering these options for all but the most simple business risks. Businesses value the service agents provide and are actively looking for agents who will provide knowledge and direction in protecting one of their biggest assets.

This creates a tremendous opportunity for agents. However, if an agency has been focused on personal lines insurance, transitioning to a commercial lines focus may be intimidating. For the next few months, in addition to our typical career advice, insnerds.com will be sharing some general information on insurance topics that are specific to the commercial lines insurance producer. Today, we will highlight some key differences between the commercial insurance consumer and the personal lines consumer, and we will discuss the effects this can have on the selling and underwriting processes.

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1. Named Insureds:

On a personal lines policy, the Named Insured will be an individual or a married couple. For the business policy, there are a variety of entity types (sole proprietor, partnership, limited liability corporation, corporation, etc.) that could be listed as the Named Insured. Depending on the ownership structure, there may be multiple Named Insureds on a single policy. Understanding how different entities are set up is key to understanding who the policy is protecting and how to frontline underwrite the account.

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2. Property Concerns:

When writing property coverage for personal lines consumers, agents are typically looking to cover homes and their contents. Property coverage for commercial consumers can cover a myriad of different building types – offices, storefronts, warehouses, etc. Contents coverage may cover any number of items, such as inventory, furniture, property of the business’ customers, and/or machinery.

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3. Liability Concerns:

Commercial consumers will have broader concerns than personal lines consumers. Underwriters will consider four different liability exposures: premises, operations, products, and completed operations, while personal lines consumers primarily have only a premises exposure. Briefly, premises exposure is the potential that a claim could arise solely due to the condition of the property in which the business operates, operations exposure is the potential that a claim could arise in the process of the work the insured performs, products exposure is the potential that a claim could arise due to the products that the insured sells, and completed operations exposure is the potential that a claim could arise due to the work the insured performs after it is completed. Because businesses can have unique operations, it is important to understand which type of liability poses the most risk and would likely lead to a greater chance of claims.

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4. Auto Insurance Concerns:

Businesses have many different needs when it comes to auto insurance. It is essential to understand who the drivers are and what the vehicles are used for. While these same principles apply when writing personal lines insurance, the variance in vehicles and uses are much greater on an auto insurance policy. Further, there are often additional regulations that apply to commercial risks. Drivers may be required to have special driver’s licenses depending on the size of the vehicles, and hauling certain commodities will require financial filings that will be new to the personal lines agent.

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5. Policy Forms:

Finally, one of the reasons that personal lines insurance has become so commoditized, other than the similarities between the insureds, is the similarities between different insurer’s forms. Commercial policy and endorsement forms can vary drastically from one carrier to another, and in many cases, insurers will manuscript endorsements to create coverage specific to an individual insured’s needs. Agents will need to understand the advantages that the forms they are selling offer to the insured. Independent agents, in particular, ought to familiarize themselves with the differences between the carriers that they write for and be cognizant of which company would be the best fit for each account in regards to coverage.

Next week, we will continue this series with another article aimed at educating agents about commercial lines topics. In the coming weeks, we will review coverages that are specific to commercial clients, differences in frontline underwriting, and best practices for servicing the business customer. If there is anything specific you’d like to read about, post your suggestions in the comments.

Carly Burnham began her insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. She got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how she fell in love with the industry. She saw firsthand the good that insurance consumers experienced by having the proper protection.
When Carly moved to Des Moines in 2010, she decided to commit to the industry, and she completed her CPCU in one year finishing it in 2012 and attending commencement in New Orleans. She completed her MBA at Iowa State University in 2014. During this time, she and Tony founded a Gen Y Associate Resource Group at Nationwide in Des Moines.
After they had both left Nationwide, Tony recruited Carly to co-author and manage InsNerds.com. She has the difficult task of keeping his constant flow of crazy ideas focused and helping to flesh them out into useful articles. Carly enjoys sharing knowledge and ideas about the future of the industry and finds the website a good outlet for this passion.
Carly is involved in the the CPCU Society Underwriting Interest Group. She also writes "Next Wave" a monthly column in the "Perspectives" section of Best's Review.

Can I satisfy the requirements of a landlord that wants me to have a commercial general liabiility in surance policy, and put the landlord down as additional insured, in order to rent a studio to use for personal art making? I don’t run a buisness other than painting for pleasure and occationally teaching at art camps and giving lectures and when I’m paid for that I am an “independent contractore” and don’t consider myself as being in business. I have no “customers” products or services to offer…so how can I get a liability insurance policy to satisfy the requirements of a general commercial liability policy? I only need it so I can rent the office or studio…whatever one wants to call it. I don’t have a website…and so what if I did…does that make me a business?

Joanne, thanks for your comment. We are not licensed to give specific insurance advice in any state. We recommend checking with a local independent insurance agent, they would know all the local statutes.